fojan tadayon; Homayoun Ranjbar; mostafa rajabi; morteza sameti
Abstract
Developing countries, including Iran, are trying to make up for the lack of private investment and other problems by trade deficit and budget deficit policies. These policies are supported by Keynes and his supporters. They believe that expansionary effects will shift the macroeconomic budget deficit ...
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Developing countries, including Iran, are trying to make up for the lack of private investment and other problems by trade deficit and budget deficit policies. These policies are supported by Keynes and his supporters. They believe that expansionary effects will shift the macroeconomic budget deficit to equilibrium. But if the budget deficit policy is adopted without considering the total supply, it will cause more inflation and trade deficit without eliminating the recession. In this study, in order to investigate the optimal path of budget deficit and trade deficit in Iran's economy, based on the design of optimal paths of economic variables during the period of 1978-2017, an optimal control theory has been used. Therefore, considering the dynamic behavior of economic variables in the country, the BP-IS-LM model is fitted according to economic theories and based on the econometric bases through the three-stage least squares method. The results of this estimate are used to policy in optimal control theory. The results of this study indicate that Iran's economy will need to control the government expenditures to reach the desired level of target variables, and contractile financial policies will have better results in controlling twin deficits.
